Today TaxMama® hears from Don in the TaxQuips Forum with a little confusion. “My daughter is a widow with 3 children. The kids receive Social Security income from their deceased father’s account. My daughter’s 13-year-old son earned $700 with a paper route & received a 1099-MISC with the amount in box 7 – Nonemployee compensation. I do my daughter’s taxes and would like to know how her son’s income affects her taxes. Do I have to file my grandson’s taxes separately? The fact that he’s a dependent on her return has me confused.”

Hi Don,

Sounds as if you all have a solid family relationship. And everyone is trying to help out. That’s wonderful.

Your grandson needs a tax return to report the income from the paper route. The 1099-MISC of $700 belongs on his Schedule C. Deduct any out of the pocket expenses the boy has – for the bike, supplies, etc. If the profit is over $400, he will be paying Self-Employment (SE) taxes, which will be under $100. You pick up his Social Security income on his on personal tax return. He will not have enough income to pay income taxes – just the SE taxes.

Do not claim the boy’s own personal exemption on his tax return. His mother is claiming him. (If you can’t figure out how to tell the software about this, call their tech support)

The children’s SS income will not affect your daughter’s tax return. Kiddie taxes are also not an issue, since they don’t have investment income. So you’re off the hook, there.

And remember, you can find answers to all kinds of questions about children’s earned income and other tax issues, free. Where? Where else? At www.TaxMama.com.

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Thank you so much for looking up the code section.
You’ve save me some precious time!

Hugs
Eva

Angie DeLongMarch 27, 2012

IRC §3121 includes a list of services not considered employment for purposes of the Social Security Act, such as

“§3121(b)(14)(A)service performed by an individual under the age of 18 in the delivery or distribution of newspapers or shopping news, not including delivery or distribution to any point for subsequent delivery or distribution;”

Thus, income received for newspaper delivery to homes (as opposed to delivery to a paper vending machine, for example) by kids under 18 in not subject to self-employment tax.